Kernel EBITDA plunges 2.6x yoy in 1HFY14

Grain trader and sunflower oil producer Kernel (KER PW) reported on Feb. 28 its 1HFY14 financials in which its EBITDA plunged 61% yoy to USD 61 mln. The decline was mainly driven by negative EBITDA of USD 48 mln in its farming segment compared to a positive result of USD 13 mln in the same year-ago period, a 51% yoy drop in the EBITDA of its bulk oil segment to USD 49.5 mln, as well as a 28% yoy lower result of its export terminals (USD 13 mln). At the same time, the EBITDA of Kernel’s silo services jumped 2.8x to USD 34 mln, while its bottled oil segment EBITDA improved 7.5% yoy to USD 16.6 mln. Kernel’s 2QFY14 EBITDA decreased 28% yoy to USD 58 mln, but grew from a low of USD 3 mln in the prior quarter. The company’s EPS came in at negative USD 0.54/share in 1HFY14 (compared to positive USD 0.88/share in 1HFY13).

Roman Topolyuk: Kernel reported EBITDA at 6% lower than our expectations, which supports our anticipation of the company possibly cutting its full-year guidance from USD 250 mln (refer to our note on Kernel of Feb. 26). Its main business segment, sunflower oil production, restored its operating profit to above USD 200/ton in 2QFY14 from a trough of around USD 50/ton in 1Q. A significant driver of the 2Q result was its silo services segment, which generated EBITDA 6.7x higher than its historical average since 3QFY12 as a result of wet weather during the quarter, which caused growth in demand for its grain drying services. We expect the silo segment’s performance to normalize in the coming quarters.

Based on 1HFY14 financials, we are upgrading our full year EBITDA forecast by 9% to USD 212 mln (-26% yoy), which is still 15% lower than guidance and 29% lower than consensus. We reiterate our bearish view on the stock.